This paper investigates the implications of the venture capital (VC) investor type (government or private) on the operating efficiency of a sample of 515 Belgian portfolio firms up to three years after the investment. We show that within a pool of VC-backed firms, the targets of the government VC display significant reductions in productivity. No significant differences in efficiency are found in firms backed by private VC compared to their non-VC-backed peers. Finally, significant reductions of efficiency are still present in targets of government VC compared to their non-VC-backed peers.

Governmental venture capital funds (GVCs) are created by policymakers around the world to support young innovative companies (YICs) with the aim of "bridging the equity gap". In this paper, we study the heterogeneity in the design of GVC programs in Europe and identify the design features that are most effective in achieving the desired outcomes of this policy. Specifically, we focus on the probability that GVC-backed companies will receive additional funds from private venture capital investors and, ultimately, changes in their growth and innovation outcomes. We find that the choices of location, colocation, syndication and industry focus of a GVC program substantially influence the extent to which it is able to achieve such goals. Important policy implications are discussed. "…Not only are we faced with a serious investment gap; we are caught in an investment trap. […] While investment is taking off in the U.S., Europe is lagging behind. Why? Because investors lack confidence, credibility and trust. […] …What we are going to do is to set up the right system that will use available public money to leverage additional capital that would have never otherwise been mobilised. Every public euro mobilised can generate additional investment that would not have happened otherwise. And it can create jobs…"

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We provide an overview of the systematic evidence relating to the impact of private equity backed buyouts over the last two decades. We focus on performance; employment and employee relations; innovation, investment and entrepreneurship; longevity and survival. We also explore a future research agenda in the context of a maturing PE industry.

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